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Default effects of credit card minimum payment
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Sakaguchi, Hiroaki, Stewart, Neil, Gathergood, John, Adams, Paul, Guttman-Kenney, Benedict, Hayes, Lucy and Hunt, Stefan (2022) Default effects of credit card minimum payment. Journal of Marketing Research, 59 (4). pp. 775-796. doi:10.1177/00222437211070589 ISSN 0022-2437.
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Official URL: https://doi.org/10.1177/00222437211070589
Abstract
Credit card minimum payments are designed to ensure that individuals pay down their debt over time, and scheduling minimum automatic repayments helps to avoid forgetting to repay. Yet minimum payments have additional, unintended psychological default effects by drawing attention away from the card balance due. First, once individuals set the minimum automatic repayment as the default, they then neglect to make the occasional larger repayments they made previously. As a result, individuals incur considerably more credit card interest than late payment fees avoided. Using detailed transaction data, the authors show that approximately 8% of all of the interest ever paid is due to this effect. Second, manual credit card payments are lower when individuals are prompted with minimum payment information. Two new interventions to mitigate this effect are tested in an experiment, prompting full repayment and prompting those repaying little to pay more, with large counter effects. Hence, shrouding the minimum payment option for automatic and manual payments and directing attention to the full balance may remedy these unintended effects.
Item Type: | Journal Article | |||||||||||||||||||||
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Subjects: | H Social Sciences > HG Finance | |||||||||||||||||||||
Divisions: | Faculty of Science, Engineering and Medicine > Science > Psychology Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Credit card fees -- Psychological aspects, Debt -- Psychological aspects, Credit -- Psychological aspects | |||||||||||||||||||||
Journal or Publication Title: | Journal of Marketing Research | |||||||||||||||||||||
Publisher: | American Marketing Association | |||||||||||||||||||||
ISSN: | 0022-2437 | |||||||||||||||||||||
Official Date: | 1 August 2022 | |||||||||||||||||||||
Dates: |
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Volume: | 59 | |||||||||||||||||||||
Number: | 4 | |||||||||||||||||||||
Page Range: | pp. 775-796 | |||||||||||||||||||||
DOI: | 10.1177/00222437211070589 | |||||||||||||||||||||
Status: | Peer Reviewed | |||||||||||||||||||||
Publication Status: | Published | |||||||||||||||||||||
Access rights to Published version: | Open Access (Creative Commons) | |||||||||||||||||||||
Date of first compliant deposit: | 6 December 2021 | |||||||||||||||||||||
Date of first compliant Open Access: | 6 December 2021 | |||||||||||||||||||||
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